Arch Capital : Q4 2019 Investor Presentation

Investor Presentation

2019 Fourth Quarter

ClickInformato editionalMasterStatementsti le style

The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward looking statements. This presentation or any other written or oral statements made by or on behalf of Arch Capital Group Ltd. and its subsidiaries may include forward looking statements, which reflect our current views with respect to future events and financial performance. All statements other than statements of historical fact included in or incorporated by reference in this presentation are forward looking statements.

Forward looking statements can generally be identified by the use of forward looking terminology such as "may," "will," "expect," "intend," "estimate," "anticipate," "believe" or "continue" or their negative or variations or similar terminology. Forward looking statements involve our current assessment of risks and uncertainties. Actual events and results may differ materially from those expressed or implied in these statements. A non-exclusive list of the important factors that could cause actual results to differ materially from those in such forward- looking statements includes the following: adverse general economic and market conditions; increased competition; pricing and policy term trends; fluctuations in the actions of rating agencies and our ability to maintain and improve our ratings; investment performance; the loss of key personnel; the adequacy of our loss reserves, severity and/or frequency of losses, greater than expected loss ratios and adverse development on claim and/or claim expense liabilities; greater frequency or severity of unpredictable natural and man-made catastrophic events; the impact of acts of terrorism and acts of war; changes in regulations and/or tax laws in the United States or elsewhere; our ability to successfully integrate, establish and maintain operating procedures as well as integrate the businesses we have acquired or may acquire into the existing operations; changes in accounting principles or policies; material differences between actual and expected assessments for guaranty funds and mandatory pooling arrangements; availability and cost to us of reinsurance to manage our gross and net exposures; the failure of others to meet their obligations to us; and other factors identified in our filings with the U.S. Securities and Exchange Commission.

The foregoing review of important factors should not be construed as exhaustive and should be read in conjunction with other cautionary statements that are included herein or elsewhere. All subsequent written and oral forward looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. We undertake no obligation to publicly update or revise any forward looking statement, whether as a result of new information, future events or otherwise.

Some non-GAAP measures of financial performance also may be referred to during this presentation. The reconciliation to GAAP and definition of operating income can be found in the Current Report on Form 8-K furnished to the SEC by Arch Capital Group Ltd. (the "Company") in connection with its most recent earnings press release, and is also available on the Company's website: www.archcapgroup.com. From time to time, the Company posts additional financial information and presentations to its website, including information with respect to its subsidiaries, and investors and other recipients of this information are encouraged to check the website.

© 202019 Arch Capital Group Ltd. All rights reserved.

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ClickCreatingto editShareholderMaster titleValuestyleThroughout The Cycle

Generate

Superior

Risk Adjusted

Returns

Thorough risk assessment of underlying exposures

Align executive compensation with long term performance

Efficient capital

management

Focus on

Underwriting

Talent intensive,

not people

intensive

Specialty lines

platforms

Active cycle

management

Conservative

Balance Sheet

Minimize

investment risk

Cautious reserving philosophy

Low financial leverage and strong liquidity

© 202019 Arch Capital Group Ltd. All rights reserved.

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Programs,

8%

Other Specialty(4),

8%

Other (inc

lenders)(3),

8%

Property, Energy, Marine &

Aviation, 17%

Construction

and National

Accounts, 6%

ClickSpecialtyto edit Master(Re)insurancetitle styleStrategy

Arch operates leading Specialty P&C and Mortgage Insurance businesses across a wide range of geographies and products providing meaningful diversification and earnings stability.

Trailing Twelve Months Ended December 31, 2019

Gross premiums written ($7.7B)	51% insurance	30% reinsurance	19% mortgage
Net premiums written ($5.5B)	48% insurance	29% reinsurance	23% mortgage

Underwriting Location¹

Bermuda and

other, 17%

Europe, 19%

U.S., 64%

¹ Based on net premiums written, excluding amounts attributable to the 'other' segment (Watford)

• Includes casualty, professional liability, executive assurance, healthcare, contract binding, and excess motor ³ Includes insurance for lenders products, alternative markets, and other insurance and reinsurance
  4 Includes reinsurance for proportional motor, trade credit, surety, workers' compensation catastrophe, and other

Line of Business¹

Travel, Accident

& Health, 6%

Mortgage,

24%

Casualty &

Professional

Lines(2), 23%

© 202019 Arch Capital Group Ltd. All rights reserved.

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Property Casualty Segments

Strong Underwriting and Risk Management Culture

• Talent intensive platform creates resiliency through market cycle.
• Manage the cycle by allocating capital to those lines with better expected returns.

• Diversified by lines of business and geography.
• In primary insurance, focus on smaller risks and low limit business produces more predictable and less volatile results over time.

	Trailing Twelve Months Ended December 31, 2019
Reinsurance Net Premiums Written $1.6B		Insurance Net Premiums Written $2.6B
Marine, Aviation and Space, 3%	Other, 4%		Other, 12%			Professional Lines, 20%
	Specialty, 29%		Lender
Property Catastrophe,			Products, 4%
7%
			Property, Energy,
			Marine and
			Aviation, 14%		Programs,
Property, 25%					16%
			Excess and
			Surplus
			Casualty, 8%		Construction and
	Casualty, 32%
		Travel, Accident and		National Accounts,
			14%
			Health, 12%

© 2020 Arch Capital Group Ltd. All rights reserved.

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Cycle Management

Insurance Segment		Reinsurance Segment
Calendar Year Net Premiums Written ($M)		Calendar Year Net Premiums Written by Line ($M)

3,000																																								1,800															Other
2,500																																								1,600
																																																					Marine,
																																						Cycle	1,400
																																																					aviation and
2,000																																							Managed																space
																																							1,200															Property
																																																							catastrophe
1,500																																							Controlling	1,000															Specialty
																																							Positions	800
1,000																																																						Property
																																							600
																																						Low															excl. CAT
																																																						Motor XOL
																																							Volatility /	400
500																																							Low Limit
																																						200															Casualty
-
																																							0
2008	2009	2010	2011	2012	2013	2014	2015	2016	2017	2018	2019		2008	2009	2010	2011	2012	2013	2014	2015	2016	2017	2018	2019

Insurance Segment: Low Volatility includes Programs, A&H, Travel, Contract Binding. Controlling Positions includes Construction, Alt Markets, National Accts, Surety. Cycle Managed includes Property, Marine, Offshore, Casualty, High Capacity EA, Onshore Energy, Med Mal.

Reinsurance Segment: Casualty includes executive assurance, professional liability, workers' compensation, healthcare and other. Specialty includes proportional motor, surety, accident and health, workers' compensation catastrophe, agriculture, trade credit and other. Other includes life, casualty clash and other.

© 2020 Arch Capital Group Ltd. All rights reserved.

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Mortgage Segment

Differentiated Business Model

• Arch aggregates risk from diversified sources and then utilizes a variety of tools for managing mortgage and credit risk.
• Arch seeks to limit risk exposure from a severe economic event (RDS) to protect capital.
• Mortgage Segment is positioned for consistent attractive returns throughout the cycle.

Arch MI RateStar® risk based pricing approach constructs risk portfolios

Realistic Disaster

Scenario informs cost of capital for RateStar

Bellemeade (ILNs) and traditional reinsurance reduce risk exposure

Realistic Disaster Scenario sets parameters for risk retention vs risk transfer

Cost of risk transfer provides independent third party view of risk

Mortgage originations and credit risk trends create risk transfer opportunities

© 2020 Arch Capital Group Ltd. All rights reserved.

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Mortgage Insurance Segment

Insurance In Force (IIF) and Underwriting Income

$440					$277	$300
			$258	$263
			$246
			$244		$250
$420			$231
			$206		$418
				$408
$400	$184	$186	$175	$404	$200

$380	$149	$172		$390
$384	$150

$373

$360

							$360						$100
					$352	$350
$340				$346
		$333											$50
$320	$325
$300															$0
	1Q17	2Q17	3Q17	4Q17	1Q18	2Q18	3Q18	4Q18	1Q19	2Q19	3Q19	4Q19
				IIF $B (Left Axis)		Underwriting Income $M (Right Axis)

Insurance In Force ($418B)

December 31, 2019

U.S.

Mortgage

Insurance

69%GSE Credit

Risk Sharing

and Intl

Insurance

25%

Mortgage

Reinsurance

6%

© 2020 Arch Capital Group Ltd. All rights reserved.

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Private Mortgage Insurance vs FHA/VA Origination

FHA/VA's Share of the Insured Mortgage Market has Declined since 2010

Market Shares of Insured Originations

100%																																																			PMI			FHA					VA/USDA
																						7%
		13%
90%																																17%
																																																																25%
80%																							16%
70%		31%
60%																																																																				28%
50%
																																		67%
40%
																						77%
30%
	56%
20%																																																																	47%
10%
																																		16%
0%
1998	1999	2000	2001	2002	2003	2004	2005	2006	2007	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017	2018	9M19

Source: Inside Mortgage Finance

© 2020 Arch Capital Group Ltd. All rights reserved.

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Arch MI US - Delinquency Rate Low

		Loans in Default and Default Rate
31,000
29,691
	Elevated due to
29,000
				hurricanes
27,000		2.57%										27,068
		26,234
				2.25%
25,000										2.23%
				23,903	23,770		24,062
23,000							2.02%
								1.98%				1.98%
												21,037		20,361	20,665
21,000																								20,163
																			19,827
															1.70%				19,243
19,000																				1.60%		1.60%				18,761
																					1.54%					1.54%
																											1.48%
																											1.45%
17,000
15,000
12/31/16		3/31/17		6/30/17		9/30/17		12/31/17		3/31/18		6/30/18			9/30/18		12/31/18	3/31/19		6/30/19	9/30/19		12/31/19
										Loans in Default (Bar, LHS)			Default Rate (Line, RHS)

2.8%

2.6%

2.4%

2.2%

2.0%

1.8%

1.6%

1.4%

1.2%

1.0%

© 2020 Arch Capital Group Ltd. All rights reserved.

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ClickBellemeadeto edit MastRer-titleInitialstyleCoverage & Spreads

As of December 31, 2019, $3.3B of coverage from Bellemeade Re

	800
	700		701
		653
			621
	600		577
$M	500		506
Coverage			342
	400	368	374
Initial	299	299
300
	200

100

-

BMIR 2015-1	BMIR 2016-1	BMIR 2017-1	BMIR 2018-1	BMIR 2018-2	BMIR 2018-3	BMIR 2019-1	BMIR 2019-2	BMIR 2019-3	BMIR 2019-4
			Initial Coverage $M Weighted Average Initial Spread (bps)

700
600
500	(bps)
400	Spread
Initial
300	Average
200	Weighted
100
0

© 202019 Arch Capital Group Ltd. All rights reserved.

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ClickKeytoTermsdit Masterof Bellemeadetitle style Re 2019-4

Cedants		United Guaranty Residential Insurance Co. and Arch Mortgage Insurance Co.
Reinsurer		Bellemeade Re 2019-4 Ltd. (Bellemeade Re), a special purpose reinsurer domiciled in Bermuda
Effective Date		August 1, 2019
Maturity		October 25, 2029 (optional call on October 25, 2026)
	 Bellemeade Re will reinsure cedants' RIF on a pool of loans that was predominately originated
Coverage		during 2019
	Bellemeade Re is responsible for all losses exceeding 2.25% of RIF subject to an initial limit of
		$577M
	 Reinsurance from Bellemeade Re will inure to the benefit of Arch Re Ltd
	 If the default rate is less than 5% and Class A's subordination is at least 11.25%, Class A's
Allocation of Principal		coverage will be reduced by its pro rata share of principal repayments on covered loans, and the
	remaining principal repayments on covered loans will be allocated to the most senior class with
Repayments		coverage remaining
		If the default rate is greater than 5% or Class A's subordination is less than 11.25%, all principal
		repayments on covered loans will be allocated to Class A (i.e., no amortization of bonds)
Allocation of Losses		Covered losses are allocated sequentially to the most junior class with coverage remaining
Pricing	 Initial: M-1A (BB+ rating by Fitch): 140 basis points (bps), M-1B (BB): 200 bps, M-1C (NR): 250
	bps, M-2 (NR): 285 bps, B-1 (NR): 385 bps (duration weighted average: 251 bps assuming
		exercise of call)
	 Bellemeade Re will maintain a trust account with funds equal to the coverage it provides
Security		to the cedants
	Eligible investments for trust are money market funds that invest directly in U.S. Treasuries

and Agencies

© 202019 Arch Capital Group Ltd. All rights reserved.

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ClickOurtoApproachedit M stertotitleEnvironmental,style Social & Governance

At Arch, we believe that it is our responsibility to do the right thing for our employees, our clients, our shareholders and our communities. We acknowledge this responsibility to our stakeholders in these key areas:

Community Impact

Our people give both their time and their financial resources to charities of all types, and the company promotes corporate citizenship through charitable donations and company-sponsored volunteer activities.

Arch is committed to making a positive impact on the communities where our employees live and work through our matching gift program, corporate giving and employee volunteerism. We help employees amplify their community impact by providing the majority of our employees with a 1:1 match on their donations to recognized charitable organizations.

Environmental Stewardship: Our Environmental Policy

We understand the risks that environmental challenges present to people and communities. As environmental stewards, we take an active role in reducing our environmental impact and look for cost-effective ways to protect and conserve natural resources. We are committed to long-term, sustainable approaches to protecting the environment.

Responsible Investing

We believe that the incorporation of material, non-financial factors into investment selection and risk management has the potential to enhance long-term investment returns. We use Environmental, Social & Governance (ESG) factors with respect to our directly managed assets and with respect to assets managed for us by third-party managers. We measure our exposure to ESG risks at both individual asset classes and total portfolio levels.

© 202019 Arch Capital Group Ltd. All rights reserved.

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ClickOurtoApproachedit M stertotitleESG,stylecontinued

Employer Responsibility

We create a workplace culture where all employees are treated with dignity and respect, and individual differences are valued, all with the goal of securing trust, empowerment and satisfaction for our employees. We foster this culture through our learning and development programs and our competitive compensation and health and welfare programs.

Diversity and Inclusion

Arch recognizes that bringing together diverse backgrounds and experiences drives innovation and leads to better outcomes for all stakeholders. We seek to foster a culture that embraces diversity and gives all employees the opportunity to succeed. This commitment is embedded in our values and contained in our company policies. Earlier this year, 78% of Arch employees participated in our first global employee engagement survey. The results indicated that our people share a bright outlook for our future, with an 84% engagement score (nine points above the industry norm).

Governance

We maintain the highest standards of corporate governance and ethical conduct. Our Board of Directors oversees the company's strategic direction and approach to risk management. In selecting Board members, our Nominating and Governance Committee's objective is to choose individuals with skills and experience who can best represent our shareholders and assist Arch's management in operating the business. The company endeavors to maintain a Board representing a diverse spectrum of expertise, background, perspective, race, gender and experience.

Data Security

Arch is committed to applying high standards of diligence and security when it comes to handling and protecting personal data and observing data protection laws and regulations. Our commitment is documented in our Privacy and Data Protection Policy.

© 202019 Arch Capital Group Ltd. All rights reserved.

14

Growth and Book Value

Book value per common share1

$30.00
$25.00
$20.00
$15.00																																	$20.30		$21.52		$26.42
$10.00																											$15.09		$15.88		$18.40
$5.00																			$9.91		$10.49		$11.97		$13.18
																$8.11
												$6.12		$5.71
										$4.89
							$3.45		$3.76
					$2.84
$0.00			$2.03
	Mar-02Dec-03Dec-04Dec-05Dec-06		Dec-07		Dec-08		Dec-09		Dec-10		Dec-11	Dec-12		Dec-13		Dec-14	Dec-15		Dec-16		Dec-17	Dec-18		Dec-19
Total
Capitalization2		$1.0	$1.9	$2.5	$2.8	$3.9	$4.3	$3.8	$4.7	$4.9	$5.0		$5.6	$6.5	$7.0		$7.1	$10.5	$11.3		$11.2	$13.2
($B):
Debt/Preferred
to Total		0.0%	10.5%	11.8%	10.8%	7.7%	6.9%	10.4%	8.5%	8.2%	8.0%		7.2%	18.7%	17.3%		17.2%	28.7%	26.4%		22.5%	19.0%
Capitalization2

1 Split adjusted as of December 31, 2019, excluding the effects of stock options and restricted stock units outstanding 2Available to Arch, including senior debt, preferred equity, common stock and AOCI.

Investor Inquiries:

Donald Watson	Vinay Misquith
Executive Vice President,	Vice President,
Financial Services	Financial Services
[phone]	[phone]
[e-mail]	[e-mail]

© 2019 Arch Capital Group Ltd. All rights reserved.

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